2009 Predictions: How Did We Do?
It’s hard to believe, but at this time last year, no one knew where the world was headed. Trillions of dollars of wealth had been wiped out by the global financial crisis that began in September 2008; once powerful banks, investment banks and insurance companies the world over had been reduced to financial cripples; General Motors and Chrysler teetered on the verge of collapse; a young, new president was taking office in the United States; and China, the economic miracle of the past thirty years, saw its economic growth rate cut almost in half from a peak of 13 percent in 2007 to 6.8 percent in the final quarter of 2008.
Against this backdrop of uncertainty, MTD made its predictions for 2009 on January 2nd.
Here is what we said:
1. China’s economy will turn up in the second quarter.
2. China’s GDP growth will fall below 8 percent.
3. The Shanghai Index will close above 3,000.
4. The yuan will remain at approximately 6.8 to the dollar.
5. The relationship between the Obama administration and China will be benign.
Now that we have the benefit of perfect hindsight, how clear was our crystal ball? Pretty clear as it turns out.
China’s Economy: During the first quarter, China’s growth slowed further to 6.1 percent. However, the data for February and March was stronger than for January, and sure enough, China clocked impressive 7.9 percent and 8.9 percent growth rates in the second and third quarters of the year, respectively, surpassing most economists’ expectations. On November 21, Yu Bin, Director General of the Department of Macroeconomic Research at Development Research Centre of the State Council (DRC), predicted that China’s fourth-quarter GDP growth would surpass 10 percent, and that annual GDP growth would reach 8.5 percent or so.
With nearly all of the data in, our prediction of a recovery in the second quarter was right on the money. Give us 20 points for this prediction.
GDP Growth in 2009: Even if Mr. Yu’s prediction for China’s fourth quarter GDP growth is off a little, it is now certain that China will exceed the 8 percent target which the country’s leaders set at the beginning of the year. Despite being positive on the Chinese economy overall, we thought that growth in subsequent quarters would not be sufficient to overcome a weak first quarter, which is why we concurred with the World Bank’s slightly lower estimate of 7.2 percent for the whole year.
We were wrong, and so was the World Bank. We’re hard markers and won’t take any points for this one.
Shanghai Index: Another prediction that was right on the money. The Shanghai Index closed on December 31 at 3,277, an impressive 80 percent gain for the year. We’ll take 20 points.
Exchange Rate: We nailed this one as well. The yuan closed 2009 at 6.829 to the US dollar where it has been all year. We based our currency prediction on the belief that China had no incentive to cause the exchange rate between the yuan and the US dollar to move in either direction during 2009 —a weaker yuan wouldn’t do much to reverse export declines caused by weak demand in the West and would likely lead to trade tensions, while a stronger yuan would only risk hurting exports further and cause a decline in the value of China’s US dollar denominated investments.
We were right. China has pegged the yuan at approximately 6.8 to the US dollar since July, 2008, and that’s where it has stayed. Give us 20 points.
Relationship With Obama: We were generally right on this one—China’s relationship with the United States and the Obama Administration has been fairly benign and uneventful all year. As we moved into the latter part of 2009, however, my sense is that the relationship had begun to trend in the wrong direction. We’ll have more to say about this in our predictions for 2010. In the meantime, though, we’ll take 20 points, but just barely.
In view of the high degree of uncertainty at the beginning of 2009, we’ll take a score of 80 and call it a day. 2010 may be harder to predict, but we’ll give you our best thoughts in the next day or so.